Do You Need to Leave an Estate?

One of the most common topics in personal finance writing is estate planning. Life insurance? A will? A living trust? These are always bandied about and readers are always encouraged to get on board with all of these things.

What’s often not asked is whether or not estate planning really even applies to you at all. Does it? Let’s take a look.

The first question you need to ask yourself is if you passed away tomorrow, would you leave anyone else behind in a financial pinch? Do you have dependents on your income tax? Are you helping out your parents as they get older? Look through your life and ask yourself if anyone would be in a significant bind if you suddenly vanished (and the people you work with professionally don’t count here).

If you can identify people who would need help (or may need your help in the near future, like a future spouse), then you should have some sort of life insurance. There are many tools online for estimating how much you’ll need – this MSN Money tool is particularly good.

If you can’t identify anyone, you probably don’t need life insurance at all. A tiny policy – just to cover your funeral expenses so you don’t burden your parents with the cost – might be appropriate, but if no one is left hanging by your passing, life insurance isn’t really a necessary expense for you.

Another worthwhile question to ask is do you have any specific sentimental property or small assets you want given to specific people when you pass? If you do, then a proper will is in order, so you can specify your wishes. If you don’t care what happens to your stuff for the most part, then you can either not have a will at all (and allow the court system to distribute your assets) or have a very will that assigns everything to one person.

What if you have a lot of assets you want to pass on to people? In that case, you’ll probably want to set up a living trust of some sort – consult a lawyer. You’ll probably also want to prepare a financial preparedness document for your survivors, so they know where everything is and can easily access it.

To put it simply, if you’re a young and unmarried professional without any kids or other challenges, you likely don’t need to worry about estate planning at all. Instead, focus your energy and your money on building a strong career and preparing yourself for the other challenges and goals in life, and revisit this question if you decide later to get married and/or have children.

If you’re young and are married (and/or have young children), but haven’t accumulated significant assets yet, you should have life insurance and a basic will. Life insurance will ensure that your surviving spouse and children are taken care of, and a will may specify any other specifics you may want to label, particularly in the event of the death of both you and your spouse with surviving children.

If you’re later on in life and have accumulated significant assets, that’s when a living will comes into play. Consult a lawyer and get one set up properly so that your wishes are clearly carried out after your passing.

Estate planning is a perfect example of how the same old financial advice doesn’t apply to everyone. People at different stages in life have different needs.

You touched one of the more important aspects of leaving a will if you are a parent – specifying guardianship over your kids. I’ve heard young parents say before that they don’t need a will because they don’t have any assets. If that’s the case, the will is still an important tool for spelling out guardianship for your children in the event both parents die together. And of course any children’s trusts, etc. that should be established with life insurance proceeds can be defined here as well.

Don’t forget to take the time to make arrangements for your pets as well. I know it sounds silly, but many pets wind up abandoned or in a shelter when their owner dies and hasn’t made arrangements for them.

Young, single professionals should get life insurance if they plan to ever marry and have children. The reason is simple, if you get sick between now and when you get married/have kids it will be impossible for you to obtain life insurance later.

If you are young and healthy, you should lock in a good rate on a long-term policy NOW.

I have a friend that was diagnosed with cancer when he was 26 years old and single. Now he is cancer free, married, with kids. He has ZERO chance of obtaining a life insurance policy with his health background, but he has a family that depends on him.

When you are young and healthy it is the best time to get life insurance. It is very cheap, not something worth cutting. A young healthy person can get a 30 year $500k policy for around $25/month. A very small expense considering the future implications.

Also, as a sidenote, if you were to pass away before you got married/had kids, then you would be leaving a nice sum to aging parents, siblings, etc. For $25/month you could leave a nice sized estate to your loved ones, not a bad price to pay if you ask me.

The title of this post had me hoping that it would be something other than yet another article along the lines of “you don’t need to worry about what happens after you die if you don’t have kids.” But I guess that that was not to be.

I’d like to see the title question actually addressed: Should you plan your saving and spending so as to leave significant amounts of money to the people and causes you care about? Or is it OK to spend most or all of it on yourself before you go (assuming that you live long enough to see any children you have grown up and able to take care of themselves)?

That doesn’t sound silly at all! Thanks for the tip. Even though I don’t have a pet now, I hope to as soon as I can properly afford one and have enough time to devote the time to one that they deserve.

@ Trent

I’m not a wills and trust or estate planning attorney, so what I’m about to say only comes from my personal (not professional) research into this subject. Even if you are a young adult and haven’t accumulated a lot of assets yet, there are still big things to plan for down the road and at least thinking about them now will save you a lot of headaches later. For example, a lot of people do a sort of will replacement by adding their children, along with their spouses, as joint tenants on the only thing they do own of any value, their home. Bad idea. (In fact, it’s even advisable, if you have your own business, to put your home in your spouse’s name only so it’s not as vulnerable to loss in a lawsuit against your business — but, of course, you need a LOT of faith in your marriage to use this strategy!) Why is it a bad idea to add your children as joint tenants on your property? Because as soon as any of your children get married and, if any of those married children (God forbid) predeceases you, that child’s joint ownership of your house goes to their spouse! And, there’s nothing you can do about it at that point. Joint ownership means everyone owns 100% of the property. You can’t sell, borrow against, or do anything with your own home without your child’s surviving spouse’s written consent.

Another trap occurs if you start a business with one or more persons. You may not have a lot of assets yet, but if any of your partner causes injury to anyone or their property while working on the business, then the rest of you are 100% liable, too! (And, your home is at risk, too, unless you put it in your spouse’s name only — or unless you create another business entity that protects you and your home in this common situation.) Even if you don’t formally file anything that says you’re partners, the law automatically assumes you are equal partners, which means each of you are 100% liable for each partner’s! (Limited partnerships, family limited partnerships, corporations, and limited liability corporations are a few of the business entities you can form to avoid this trap.)

One important thing that every adult should consider is a durable power of attorney. With that instrument, if you should ever become unable to do so, you can say who will make all the important decisions for your property. This is very handy if you are unmarried but would rather that your life partner have that power instead of, say, your parents, or your siblings.

Finally, did you know that life insurance is taxed (in some situations close to 50%, depending on the estate tax) as long as you maintain control over it while you’re alive? That means your beneficiaries only get a fraction of what you’ve paid for! However, there is an “insurance trust” eliminates that tax because it takes control of that payout out of your control and into your beneficiaries’, making it part of their estate, and, hence, not taxable upon your death.

Sorry to end on a downer, but I thought these subjects might be of interest to your readers. You may already know all this. And, I have to confess I haven’t set up any of these things myself. Writing this has made me think about it, though. Thanks for another great post!

Each person’s situtation is unique. In California, the probate of an estate that passes by will or by administration without a will takes significant time and ends up costing a significant percentage of the estate in statutory fees to the executor or court-appointed administrator. A living trust, which can be obtained for less than $2000 dollars for a simple estate from a good attorney, will protect against the hassle and expense of probate. It basically cuts the government out of the picture. So, don’t wait until you have “significant assets” to see a lawyer.

It’s not something that appears only if you plan for it, or if you have significant assets when you die. It’s the “residue of your life” (as my boss once put it). Even a homeless person leaves an “estate” – the clothes (s)he died in!

Some estates are more sizeable than others, and I agree with what you’ve said about how some people need “estate PLANNING” while others don’t… but don’t tell people they don’t need an estate – they have one whether they like it or not!

(BTW – my own rule of thumb that I’ve told clients for years is “if you have a child or a significant asset, you need a will at minimum”… oh, I’m an estate accountant :))

In many instances, your best friend for having money go to who you wish upon your death is three letters: P.O.D. (Payment On Death). P.O.D. can be setup on bank accounts, Certificates of Deposit, etc. Many estate planners will not tell you of P.O.D. until you have paid consultation fees. It is in your best interest to educate yourself on P.O.D. — the best available means for people of modest means to avoid probate for cash holdings.

Bottom line: You designate P.O.D. beneficiaries and upon your death – it falls outside of probate and is considered a direct-payment private transaction – much like a life insurance policy pays out upon death to a beneficiary.

This is important. My sister’s husband passed away about 2 1/2 years ago at the age of 26. She was 23 at the time and had a three month old daughter. They didn’t have life insurance because they didn’t think they needed it. They were both young… You never know what is going to happen. It is important to be prepared.

Like Johanna, I’m wondering if I should plan to leave an inheritance for my grown children. My husband and I have enough savings to consider retiring at 60. We could live our current, fairly frugal lifestyle and not run out of money until our late 80s. However, if we want to preserve any assets for our children, that changes the calculations considerately.

About 25% of our savings has come from my parents, and we expect to eventually inherit a smaller amount from his folks. Do we have a moral or ethical obligation to do the same for our children?

The importance of estate planning only comes to light after it’s too late. I have a family member who lost a maternal grandfather and a paternal grandmother on the same day – one was a freak accident, the other occurred in hospital after a prolonged illness.

One side of the family had proper estate planning, the other had none. The grandparent that planned things in advance had already purchased a burial plot, left clear instructions for the funeral, and ensured that funds were available to pay for everything. In short, her wishes were clear. As a result, the burden on the survivors was considerably less – they could focus on grieving and not worry about all of the details, because the decisions on those details had been made in advance.

On the other side of the family, where no planning took place, the widow had to make all of the decisions on short notice while in a very distraught state (she had just lost her husband to a freak accident, after all). On top of the emotional shock, she had to deal with funeral arrangements, getting a burial plot, and making sure everything could be paid for.

Yes, it’s important to have a will. But it’s also important to sit down and decide exactly what you want to happen when you die. Memorial societies are a particularly good resource for this kind of planning (Google “memorial society” and your city to locate one near you).

I also thought this was going to be a post about whether to leave an estate, not how to leave an estate.

Re: Sharon — I do NOT think you have an obligation to leave an estate for grown children. You have an obligation to raise your children to be self sufficient. That’s not to say you shouldn’t leave something — if you have the means, then great. And if you have young children or children who are adult dependents (and I mean this in the tax defined kind of way, not the lazy SOB kind of way), then I think you need to provide for them after you are gone to the best of your abilities, bearing in mind that (in canada at least) those kids would be eligible for orphans benefits. However, if your goal is to retire at 60 (not unreasonable), and that means you won’t be leaving an estate for your kids, that is your choice to make. It was YOUR life spent accumulating your estate.

I suppose if you had inherited your wealth, then you are instead a steward of that wealth and should do your best to leave a legacy for those coming after you.

I suppose if you have a secret wealth, and you have kept it tucked away and expected your grown children to pay your expenses, then you ought to leave it to your kids, but I bet they would have been better off and happier if you had been self supporting.

I have told my mom that I would rather see her fulfill some life dreams (e.g. overseas travel) rather than leave a sizable estate for us (although I’d be happy to inherit if she doesn’t have anything better to do with her money).

It seems to me that kids are often less frugal than their parents, so why should the less frugal ones be the ones to reap the benefits of the sacrifice? This applies re me and my mom. I have also read that where one generation builds up wealth, it is often disappated by the third generation.

That being said, I would love to be able to leave an inheritance for my kids, and I would certainly be thrilled if I received one. I just don’t see that it is an obligation.

“If you can’t identify anyone, you probably don’t need life insurance at all.” LI is needed if you have equity in a home or other asset and dont want family to have significant financial issues when you pass.
“if you’re a young and unmarried professional without any kids or other challenges, you likely don’t need to worry about estate planning at all.” If one doesnt worry about it, the state and federal govs will get a lot of it, as will probate expenses. Simple things like failing to name beneficiaries to policies and bank accounts will tie up assets unnecessarily. Meanwhile, relatives will have to pay bills out of their pocket until probate is settled.
Everyone needs estate planning. The real question is how much, all based on assets and what one wants done with them when death comes calling.

Saying that you don’t have to worry if you don’t have kids or what ever is not financially sound advice, Trent. I mean no disrespect but everyone leaves behind something. If nothing else, a body is left behind. And if a person did build up any amount of assets, I would assume that they would at least want to have a say in where the $ goes. I’d rathr have the money go to the animal shelter that to Uncle. I’m sorry but this seems too dismisive.

I must also agree with Johanna on this one. It’s a real slap in the face to be told, all the time, that you don’t matter if you don’t have kids (or if you are single). In reality it don’t mean jack!!! There seem to be this bias, mostly among the ‘kid club.’ I have noticed that once someone has a kid they take on a whole new, holier than thou attitude like they are have somehow transcended into anoter class. How does that work?

I just took my Mother to a Lawyer (she is 81) to update, her will, power of attorney, medical power of attorney and living will which all are important no matter what age you are. We took in a list of all her assets, including life insurance policies, CD’s, Banking information, nursing home insurance, mortgage information (yes at 81 she has a mortgage) etc. Her attorney set up everything, if she were to get sick and not be able to make decisions on her own, I am set up to make them for her, even if it is only for a short while if she is recuperating from an illness or God forbid a broken hip, stroke or heart attack. I can pay her bills, manage her property, make important medical decisions. Now you think she is 81 of course you need that, but let us say you are 25 and you are in a accident, my husband was just in a motorcycle incident and was out of work for over a month, yes he is married and I still paid all the bills, took him to the Dr. and managed the house, but if he wasn’t married and it had been more serious, who would have paid his bills if he had been in the hospital unable to do so. Who would have made his medical decisions if he couldn’t, and don’t say family, if it’s not in writing many Dr.’s won’t take a chance on being sued. Let’s say he’s not close to his family but has a live-in whom he had been close to for years, they aren’t married and that person has no rights, not to what they may have purchased together, no right to make medical decisions, no right to do anything. My husband and I will be making an appointment with the same attorney to get our financial/medical house in order, medical power of attorney, under what conditions do I want to be kept alive? Will, some of our things are family heirlooms we would want to go back to our families to be passed on. Do I want to donate my organs? If I or my husband had been previously married we would want to make sure things were changed. I know a woman whose husband didn’t think about his old will with his ex-wife and yes she got a lot and my friend lost out on some of his life insurance, property he didn’t add her name to, a car that was solely in his name and she spent years taking care of him through a long illness, he was 40 when he died. Ex-wife could not have cared less if he lived or died, but reaped the benefits of being married to him years ago. My friend ended up with the bills for medical and burial, ex-wife got his car, a small piece of property, all solely in the husbands name but left to the ex per his will, insurance money he didn’t change the beneficiary on. We don’t have children and never will, but everything needs to be in writing, give a copy of the medical power of attorney and living will to the Primary care Physician, don’t count on the hospital to keep it for you, they can never find it when you need it and you may have it in a lock box you can’t get to until the next business day, if something happens on a Friday night that would be Monday. Try to make up a file for “just in case I’m injured or die” so the other person knows what you want, what your final wishes may be, where are your assets, something to grab and take to the hospital if necessary. My moms visit cost me $400 and probably saved me a lot of grief, the Lawyer has copies of all the documents and notes she took during our visit for clarity if there are any questions from my siblings who also have copies of all the documents and were told to read them and ask questions before they were signed and finalized. This is long, but so important, take the time, spend the money, laws differ from state to state, probate is a bitch I went through it with my dad who didn’t have a will, mom was a nervous wreck and it cost lots of money. Do it because you love them, because you want your wishes carried out, so you don’t lose you house and everything you’ve worked for.

I agree that if you are young and don’t have any assets or dependents that it probably doesn’t make sense to have an estate plan. But once you have kids you need a will at the very least to ensure they are cared for.

The will is more than just a financial tool for the distribution of assets.

re daydreamr — it’s not that you don’t matter if you have no kids, it’s that you probably aren’t going to leave someone vulnerable if you die — e.g. children. Obviously you matter to your family and friends. It’s not about children, it’s about dependents. And if you do have dependents (sibling or parents whom you support), then you should plan for them. It just happens that for most people, their dependents are their kids, and all kids are dependents. Also, there is a cost to estate planning, and while I think it is worth doing if you have any assets, you might, if single, choose to wait until your life circumstances change before investing in the planning process and incurring those costs a second time.

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